Question

how much should I invest, and what should be the total fixed cost,total variable cost, expected revenue and pay back period for my start-up on onlin gaming?

Answer 1

COST FOR STARTING A ONLINE GAMING BUSINESS

1. Registration of a legal entity (one time cost)

Without a legal entity, you will not be able to open the type of bank account you need, obtain a license and enter into partnership agreements with suppliers of software and payment services. It is best to register in the country of registration of the license, as this is usually required by local rules and, if it is an offshore zone, there is usually less taxation.

The table shows the total amount of fiscal payments when opening a company, but the cost of this issue is usually higher, since you will also need to hire a local lawyer to draw. 2up and submit the relevant documents. As a rule, this is an additional 500 - 1000 dollars. In addition, there may be other costs associated with the creation of the company, such as fees for filing an application, registering a trademark, renting an office, equipment and hiring local employees.

2. Software purchase (both fixed and variable)

Software is the most important element in the management structure of online casinos, the success of your project and its further development directly depends from the functionality, capabilities and reliability. The platform must have a stylish and expensive design. There are many projects which have a bad reputation, so your website should be credible for new visitors. A gambling platform requires at least three classes of programs:

1. Game platform. Designed to manage platform resources, fine-tune and administer user accounts. This is the foundation on which your site will operate. Prices for such software range from 10 to 500 thousand dollars + commission (from 15 to 60%). Most popular: Real Time Gaming, Playtechnet, Microgaming and Cryptologic.
2. Game content. Various slots, games and lotteries that are launched at the request of the player. Traditionally, slot machines are sold along with software for the gaming platform, but they can be bought separately. Prices - from 200 to 5000 dollars per game + commission. It’s best to buy games in bulk from providers. So cheaper, faster and easier. Most popular providers: Playson, Microgaming, NetEnt, Evolution Gaming and BetSoft.
3. Payment decisions. Programs for conducting transactions between players and casinos. There should be quite a lot of them so that users can find among them those that they are used to using. As in the case of games, you can either connect means of payment for reporting, or conclude an agreement with the provider. Cost - 20 thousand dollars a month for one gateway. The most famous suppliers: PayPal, Click2Pay, Skrill, Neteller, Visa and MasterCard.

Work with suppliers of software for the gaming platform and games is not necessary. Nothing prevents you from creating your own solutions from scratch by hiring developers to outsource. This approach gives more control and copyright, but it takes a lot more time and money.

3. License Fee (fixed one time )

States where you can get an online casino license

A license to conduct a gambling business on the Internet gives you the right to host the servers of your online casino in the country that issued this license. You can’t post them anywhere, because it either requires a local license or Internet gambling is prohibited in the selected country. The most popular countries where online gambling is allowed:

A license can give the right to conduct a gambling business in a certain region, throughout the country or internationally. In addition, such permission may relate to a particular class / group, which indicates a permitted type of activity. For example, in Malta there are 6 classes of gaming licenses:

1. Class 1 - repetitive games (lotteries, online casinos, skill games);
2. Class 2 - bets (sports, e-sports, fantasy sports, significant events);
3. Class 3 - promotion of other people's gambling for a commission;
4. Class 4 - ensuring the operation of remote foreign platforms;
5. Class 1 on the 4th - management of a casino on someone else's remote platform;
6. Class 3 on the 4th - promotion of other people's platforms for a commission.

The class of a license affects its value and the amount of taxes.

In addition to the license fee, you will most likely have to pay a certain amount as payment for some additional costs that differ depending on the jurisdiction. So, in Canavec, you need to pay 15 thousand Canadian dollars for technical verification of software, in Antigua and Barbuda - 15 thousand dollars for checking documentation and another 100 thousand dollars for the development of gambling (annually, regardless of income).

Summarizing, we can say that a full license in offshore companies will cost 100-300 thousand dollars, for the European Union - from 300 thousand to 1 million dollars. If this goes beyond your budget, then you can reduce the licensing costs of your casino by choosing a different business model:

1. Obtaining a license from your software provider costs from 30 to 300 thousand dollars (similar to a franchise). The supplier does everything except marketing and site management (CEO, payments, design, content, etc.). With this approach, you can work under a supplier’s license in exchange for monthly / annual rental payments.
2. The work of sublicense is even cheaper - from 5 to 60 thousand dollars. For example, on the Isle of Man, sublicensing costs 5 thousand pounds. In this model, you become a referral of the license holder and are engaged only in marketing and attracting customers in exchange for a share of profit.

4. Website and application creation (variable)

In order for your platform to interact with players, you need to create a website and a mobile application. Their development begins with the choice of functionality. In addition to the functions of the gaming platform and the games themselves, this:

1. Registration and profile management. To start playing, the user must go to the platform, specify the payment details and replenish the deposit. To do this, you need the registration function and user profiles. Registration can be done via phone, email or Google account, Facebook or other social network.
2. Payment system. Players will deposit / withdraw funds through payment gateways, the interface of which will be posted on your site. The simpler and more convenient it is, the better. In addition, it is also important that the players have as many options as possible for input / output and have the ability to set the maximum amount that users can instantly cash out.
3. Customer support. Players should be able to contact the online casino support 24/7. This will help build a good reputation, which will help attract players and, consequently, increase profits.
4. Safety. To protect money on deposits and personal data, you need to protect traffic with SSL and other security tools.
5. Bonuses. To attract as many players as possible, the site should offer a flexible and attractive bonus system (for registration, replenishment of a deposit, participation in some games, repeated replenishment of deposits, etc).
6. Affiliate Payments. At first, most of the players you are likely to bring with the help of referral programs, so it is important to think in advance about what they will be: to whom, when, how much, for what and for how long to make payments.

The list of functions can be expanded due to the support of several languages, text chat, rating system, push notifications, support for VR and AR, multi-currency payments, etc. Their implementation will increase the cost of development, but at the same time you will have the opportunity to stand out among competitors, creating a unique positive user experience.

The cost of creating a website and a mobile application depends on the development approach:

5. Marketing promotion (variable)

How much and on what advertising casinos in the UK spent in 2017 (Source of the image: GambleAwareng)

The cost of promoting an online casino can vary from 20 to 100 thousand dollars a month. The high cost is due to the prohibition of gambling ads on Google, YouTube, Facebook and Instagram. As a result, you will have to spend quite large amounts on creating SEO content and paying partners.

The best partners are sites that are at the top of the natural search engine results of Google, Baidu, Yahoo, Bing, Ask and Yandex for such key queries as “online casinos”, “best online casinos” and “top online casinos” ". To attract such partners, you will need to offer them fairly large transactions for the distribution of income - from 40 to 60%. This will take up to 80% of the budget of your marketing expenses.

Payments can occur according to one of the following schemes:

1. CPA (purchase price): up to 500 dollars. The casino pays the affiliate partner a fixed amount for attracting a player who has registered on the online casino site and replenished the deposit.
2. Revshare (income distribution): 25% or more of a player’s loss. The casino pays the partner a percentage of the player’s loss. The amount of interest is usually determined during negotiations. Usually it is 25%, but at the start of the casino it can pay up to 60% of its profit.

The remaining 20% will go towards creating SEO content that will compete with other casinos as well as with your partners. Which is partially inefficient, but you will not have a choice, since this is the norm in the gambling market.

In addition, you can also sponsor sports teams and events, if local regulators allow it. But, it is very expensive. For example, in 2012, Chevrolet paid $ 559 million to the Manchester United team for a 7-year sponsorship contract. Of course, you can save a lot by sponsoring small teams or unpopular sports, but this makes no sense - insufficient audience coverage.

6. Salary and Maintenance (fixed cost)

Online casinos require ongoing management, maintenance and development programs, which requires a team of professionals. At the start, it should include 17 specialists:

• 1 designer, 2 web developers and 1 leader / project manager;
• 4 support agents and 1 manager, who at the start of the project can also hold the position of anti-fraud specialist;
• 3 sales managers and 1 marketing specialist;
• affiliate manager / media buyer for buying traffic;
• specialist in payment systems;
• content manager / copywriter;
• accountant / bookkeeper.

In addition, the salaries of managers and intermediaries should also be considered. Sometimes this is a mandatory requirement of regulators. Like on the Isle of Man, where an online casino should have two directors and one official representative.

In Western Europe, Japan, the United States and Canada, the salaries of these 17 specialists and management will be from 500 to 600 thousand dollars a year, without taxes, office rent and staff costs. In Eastern Europe it will be 200-300 thousand dollars a year, in Africa, Latin America and some regions of Asia - 100-150 thousand a year.

In addition to this, you will also need to spend from 5 to 20 thousand dollars to install a dedicated server and place your software on it. In some countries, such as Curacao, such a server needs to be located on the territory of the country and connected to local fiscal platforms so that the state can see online casino transactions. This is necessary for taxes and the fight against terrorist financing and money laundering.

7. Reserve for payments to players (fixed cost)

Reserve for payments to players (security deposit, financial security) —the amount you need to put in the bank to guarantee payments to the winners in your casino. This money should be in a special account with a bank, and it should not be used to cover operating expenses, tax payments, dividends and other operations.

Usually this amount is regulated by laws and is set at a certain minimum amount. Minimum size of guarantee deposits:

1. Curacao - 60,000 Dutch Maltese guilders.
2. Antigua and Barbuda - $ 100,000.
3. Great Britain - from 175 600 pounds.
4. Belgium - from 75,000 to 250,000 euros.
5. Panama - $ 100,000.

What else to consider

1. Transactional banking commissions - from 0.1 to 3% of the amount of transfers.
2. Representation costs (lunch at a restaurant with potential partners, “gifts” to officials, airline tickets for you and your employees, etc.) - depends on your place of residence and the chosen jurisdiction.
3. Rent or purchase of office and premises for server hosting - depends on location.

EXPECTED REVENUE

there is a 22% growth rate of business in gaming industry year on year and suppose u invest 1 million dollar then your revenue will be as follows

year	revenue
2020	220,000
2021	268,400
2022	327,448
2023	400,000
2024	487,373

formula used - 2020 -1,000,000 x 22%

2021 - 220,000 x 1.22%

and so on

payback period

= 3.46

your cost of 815,848 will be recovered in 3 years and leftover cost of 184,152 will be covered in year 4 in 0.46 part of the year